This lesson focuses on the April 26, 2013, first (advance) estimate of U.S. real gross domestic product (real GDP) growth for the first quarter (Q1) of 2013, as reported by the U.S. Bureau of Economic Analysis (BEA). The current data and historical data are explained. The meaning of GDP and potential impacts of changes of GDP are explored. The lesson will also raise questions about the impact of the current level of growth on the U.S. economy and individuals.

Current Key Economic Indicators

The Consumer Price Index for All Urban Consumers (CPI-U) declined 0.4% in December on a seasonally adjusted basis. The gasoline index fell 9.4% and was the main cause of the decrease in the seasonally adjusted all items index. The all items index increased 0.8% over the last 12 months, although the core inflation rate (less food and energy) did not change in December.

The unemployment rate rose to 5.7% in January of 2015, according to the Bureau of Labor Statistics release of Feb. 6, 2015. Total nonfarm employment rose by 257,000. Job gains were particularly strong in retail trade, construction, health care, financial activities, and manufacturing.This is the second month in a row that posted gains in construction and manufacturing.

Real GDP increased 2.6% in the fourth quarter of 2014, according to the advance estimate released by the Bureau of Economic Analysis. Consumer spending drove growth due to the reduction in gas prices, while a decrease in government expenditures was the most significant drag on growth. Third quarter growth was 5%.

In its January 28, 2015, statement, the FOMC cited the continued growth of the labor market, increased household and business spending, and below-target inflation as indicators of an economy that continues to recover. They expect below-target inflation to rise as oil prices and other "transitory" effects diminish. The statement reaffirmed the FOMC intention to keep the federal funds rate at its current low level. Notably, the FOMC added international variables to its list of factors to monitor for the timing of a rate increase.

INTRODUCTION

Each month, the Bureau of Economic Analysis (BEA), an agency of the U.S. Department of Commerce, releases an estimate of the level and growth of U.S. gross domestic product (GDP), the output of goods and services produced by labor and property located in the United States.

This lesson focuses on the BEA's first (advance) estimate of real GDP growth released on April 26, 2012, for the first quarter of 2013 (January-March.) Understanding the level and rate of growth of the economy's output (GDP) helps to better understand growth, employment trends, the health of the business sector, and consumer well-being.

Note: During the second semester of the 2012-2013 school year (January-May), EconEdLink will publish four Focus on Economic Data lessons on "U.S. Real GDP Growth." Real GDP data is announced three times for each fiscal quarter. For Q1 2013, the first estimate is made in April, the second estimate is made in May, and the third estimate for Q1 is made in June.

GDP data reports lag the reporting period - the fiscal quarter. The current estimate is the first for Q1 (January-March, 2013). Each of the three estimates for a quarter will include more comprehensive data and may modify the growth rate reported earlier.

[Teacher Note: Each Real GDP lesson will provide the most up-to-date data and focus on some specific topics or issues related to GDP. Second semester 2010-2011 schedule:

January 2013 (first estimate for Q4 2012): How to read the data, real vs. nominal, and how the data is collected

RESOURCES

Measuring the Economy: A Primer on GDP and the National Income and Product Accounts: This BEA article introduces new users to the basics of U.S. national income and product accounts.www.bea.gov/national/pdf/nipa_primer.pdf

Key Economic Indicators

On a seasonally adjusted basis, the Consumer Price Index for All Urban Consumers decreased 0.2 percent in March after increasing 0.7 percent in February. The index for all items less food and energy rose 0.1 percent in March after rising 0.2 percent in February.

Nonfarm payroll employment edged up in March (+88,000), and the unemployment rate was little changed at 7.6 percent. Employment grew in professional and business services and in health care but declined in retail trade.

Real gross domestic product increased at an annual rate of 2.5 percent in the first quarter of 2013 (that is, from the fourth quarter to the first quarter), according to the "advance" estimate released by the Bureau of Economic Analysis. In the fourth quarter, real GDP increased 0.4 percent.

Information received since the Federal Open Market Committee met in January suggests a return to moderate economic growth following a pause late last year. Labor market conditions have shown signs of improvement in recent months but the unemployment rate remains elevated. The FOMC maintained the federal funds rate target at zero to .25 percent.

PROCESS

The U.S. economy grew in the first quarter of 2013 at a significantly faster rate than the last quarter of 2012. Is this really good news or good news? Are we simply back to where we were after a pause in Q4 2012? Take a look at the BEA's first estimate of the performance of the U.S. economy in early 2013 and decide for yourself.

"Real gross domestic product -- the output of goods and services produced by labor and property located in the United States -- increased at an annual rate of 2.5 percent in the first quarter of 2013 (that is, from the fourth quarter to the first quarter), according to the "advance" estimate released by the Bureau of Economic Analysis. In the fourth quarter, real GDP increased 0.4 percent."

The rollercoaster of economic growth is on the upswing at 2.5 percent annualized growth in Q1 2013, after much less growth, 0.4 percent annualized in Q4 2012, following a 3.0 percent growth rate in Q3 2012. That followed growth of just 1.3 percent in Q2. Remember, it is too early to confirm the actual GDP growth in Q1, as the BEA comments. See Figure 1, below, for more of the recent quarterly GDP growth data.

"The Bureau emphasized that the first-quarter advance estimate released today is based on source data that are incomplete or subject to further revision by the source agency. The "second" estimate for the first quarter, based on more complete data, will be released on May 30, 2013."

Remember, the BEA issues three real GDP reports each quarter, each based on new and more complete data. This is the first estimate for Q1 of 2013. The average revision from the advance estimate to the third estimate (two months later), has been about 0.6 percentage point.

[Teacher Note: Ask your students: Is the Q1 2013 growth rate good or bad in this context? We may not know for sure until we see the real GDP growth rate for the next couple of quarters.]

[Teacher Note: Point out to students the problem of interpreting a big increase or decrease of GDP growth in one quarter as a "trend." Late 2012 and early 2013 is a good example of one quarter's growth being much greater than the other quarters. Is it a trend?]

Figure 1, below, shows the U.S. quarterly real GDP growth rates from 1999 through Q1 of 2012. Note the real GDP negative growth in 2008 and the first half of 2009. This is the period that looks like the traditional definition of a recession. The Bureau of Economic Research identified the end of the recession as June, 2009, but did not do so until September 2010.

[Note to teachers: Students should be able to determine the recessionary periods during this time span. See the NBER "Business Cycle Dating Committee" announcement for the "official dates of recessions" on their Official Dates of Recessions and Recoveries
page.]

Real GDP Growth in Q1 2012

Where did the Q1 growth come from? The BEA reported, "The increase in real GDP in the first quarter primarily reflected positive contributions from personal consumption expenditures (PCE), private inventory investment, exports, residential investment, and nonresidential fixed investment that were partly offset by negative contributions from federal government spending and state and local government spending. Imports, which are a subtraction in the calculation of GDP, increased."

The GDP growth rate in Q1 2013 was greater than growth in Q4 2012. Where did the change come from? The BEA noted, “The acceleration in real GDP in the first quarter primarily reflected an upturn in private inventory investment, an acceleration in PCE, an upturn in exports, and a smaller decrease in federal government spending that were partly offset by an upturn in imports and a deceleration in nonresidential fixed investment."

Key Industry Groups and Sectors in Q1 2013

In recent years, the BEA has specifically mentioned the output of two major industries, automobiles and computers, in response to the demand for information about those industries.

"Motor vehicle output added 0.24 percentage point to the first-quarter change in real GDP after adding 0.18 percentage point to the fourth-quarter change."

"Final sales of computers subtracted 0.01 percentage point from the first-quarter change in real GDP after adding 0.10 percentage point to the fourth-quarter change."

The BEA breaks out the GDP data for the four "sectors" of the economy - consumer purchases, business investment, government spending and net exports.

"Real personal consumption expenditures increased 3.2 percent in the first quarter, compared with an increase of 1.8 percent in the fourth. Durable goods increased 8.1 percent, compared with an increase of 13.6 percent. Nondurable goods increased 1.0 percent, compared with an increase of 0.1 percent. Services increased 3.1 percent, compared with an increase of 0.6 percent."

"Real nonresidential fixed investment increased 2.1 percent in the first quarter, compared with an increase of 13.2 percent in the fourth. Nonresidential structures decreased 0.3 percent, in contrast to an increase of 16.7 percent. Equipment and software increased 3.0 percent, compared with an increase of 11.8 percent. Real residential fixed investment increased 12.6 percent, compared with an increase of 17.6 percent."

"Real exports of goods and services increased 2.9 percent in the first quarter, in contrast to a decrease of 2.8 percent in the fourth. Real imports of goods and services increased 5.4 percent, in contrast to a decrease of 4.2 percent."

"Real federal government consumption expenditures and gross investment decreased 8.4 percent in the first quarter, compared with a decrease of 14.8 percent in the fourth. National defense decreased 11.5 percent, compared with a decrease of 22.1 percent. Nondefense decreased 2.0 percent, in contrast to an increase of 1.7 percent. Real state and local government consumption expenditures and gross investment decreased 1.2 percent, compared with a decrease of 1.5 percent."

One important note about the Q1 GDP estimate is the impact of inventory growth - goods that were produced in Q1, but not sold.

"The change in real private inventories added 1.03 percentage points to the first-quarter change in real GDP after subtracting 1.52 percentage points from the fourth-quarter change. Private businesses increased inventories $50.3 billion in the first quarter, following increases of $13.3 billion in the fourth quarter and $60.3 billion in the third."

Inventories increased significantly in Q1 after falling in Q4 of 2013. Inventory growth can make the GDP growth rate look greater than the real growth of spending.

[Note to teachers: Students can look at the detailed GDP Data by Industries
to identify how well the key industries in their city or region are doing.]

[Note to teachers: Ask your students why they think the BEA chooses to single out automobile sales and computer sales data. Why are these two products so important to understanding GDP growth? Automobile and computer sales are large, normally discretionary purchases.]

What was the U.S. current-dollar GDP at the end of Q1 2013?

$16,010,200,000,000

"Current-dollar GDP -- the market value of the nation's output of goods and services -- increased 3.7 percent, or $146.1 billion, in the first quarter to a level of $16,010.2 billion. In the fourth quarter, current-dollar GDP increased 1.3 percent, or $53.1 billion."

Current dollar estimates are expressed in today's prices. Chained dollar (real) estimates are adjusted for inflation using the price index for gross domestic purchases. The BEA press release explains, "The price index for gross domestic purchases, which measures prices paid by U.S. residents, increased 1.1 percent in the first quarter, compared with an increase of 1.6 percent in the fourth. Excluding food and energy prices, the price index for gross domestic purchases increased 1.3 percent in the first quarter, compared with an increase of 1.2 percent in the fourth."

[Note to teachers: Make sure your students are clear about the difference between the nominal (current) dollar GDP and the chained (real) GDP measurements.]

[Note to Teachers: Ask your students: What is the U.S. per capita GDP?. Divide the current dollar GDP by the population. $16,010,200,000,000divided by 316,668,567= $50,558. Data as of April, 2013.]

The BEA releases annual GDP data for eight U.S. regions, the fifty states, and metropolitan areas. The most recent state and regional data was released June 5, 2012. The current regional and state GDP release is through the year 2011.

"Real gross domestic product (GDP) increased in 43 states and the District of Columbia in 2011, according to new statistics released today by the U.S. Bureau of Economic Analysis (BEA) that breakdown GDP by state. Durable–goods manufacturing, professional, scientific, and technical services, and information services were the leading contributors to real U.S. economic growth. U.S. real GDP by state grew 1.5 percent in 2011 after a 3.1 percent increase in 2010."

"Real GDP increased in all eight BEA regions in 2011, although growth slowed in most regions. The Far West (2.1 percent) was the only region where growth accelerated. The Southwest region grew the fastest (2.7 percent), led by Texas with a 3.3 percent increase."

Figure 2, below shows the map of the eight U.S. regions, with the percent change in real GDP by state. Note the states with the highest growth rates (dark blue) and the states with the slowest growth rates (gold). Within each region, the state growth rates vary.

[Teacher Note: Students can compare their state or region to other states and regions. What factors may have influenced the pace or growth in their state or region? What industries are growing or declining in their state or region?]

ASSESSMENT ACTIVITY

CONCLUSION

U.S. real gross domestic product increased at an annual rate of 2.5 percent in the first quarter of 2013, following very slow growth in late 2012.

Will a return to growth (if this is a trend) signal a real recovery? Will the growth result in more jobs and a lower unemployment rate? Take a look at the BLS announcement of the "Employment Situation" for April, 2013 released on May 3, 2013. Go to: www.bls.gov.
The U.S. unemployment rate remains historically high at just under 8 percent.

As evidenced by the rates of GDP growth in the various states (See Figure 2), the pace of economic recovery varies greatly from one area to another, but all of the U.S. regions grew in 2011. The Southwest and Far West led the U.S. in regional GDP growth rates.

Keep an eye on the later estimates of real GDP growth for Q1 2013 (released near the ends of in May and June) for a more accurate picture of U.S. economic growth and recovery.

EXTENSION ACTIVITY

Recent GDP Data in Detail

Table 2 of the BEA’s April 26, 2013, real GDP estimates is a detailed breakdown of the data by sector and specific types of goods and services, investments, and trade, from 2008 through Q1 2013.

Take a good look at the data. What are the areas of growth and decline? Was the data (growth rates) consistent throughout the period of time? Summarize your interpretation of the data in Table 2.

Go to the BEA April 26, 2013 announcement, AppendixTable A1, "Gross Domestic Product: Percent Change From Preceding Period." ((Scroll down o the end of the tables.) You can use this page to look at changes in GDP over any selected period of time. Try looking at the changes over the years since you were born.